India-EU agreement cuts car tariffs as EU eyes 4 million vehicle market

The European Automobile Manufacturers' Association (ACEA) welcomed the conclusion of negotiations for a free trade agreement between the European Union and India, with the association saying Jan. 27 that the successful end to negotiations is a "landmark moment in global trade relations" as it will help European automobile exports enter a market of 4 million passenger cars that, until now, has been protected by import tariffs of up to 110%.

This is the largest trade agreement that both the EU and India have concluded, with both sides expected to benefit strongly from it, including the EU automotive industry as well as steel and iron sectors.

According to the EU-India Free Trade Agreement fact sheet, the EU exported vehicles valued at Eur1.6 billion, with tariffs expected to see a gradual reduction in customs duties for vehicles to 10% under a quota of 250,000 vehicles per year and complete tariff elimination for car parts after 5-10 years. Europe exported iron ore and steel valued at Eur1.5 billion, with current tariffs up to 22% that will reach 0% for almost all products under the agreement.

As reported in ACEA's statement, the trade agreement still comes with restrictions such as quota limitations and residual tariffs that will limit the potential benefits to some extent. However, a full assessment of the detailed terms of the deal will begin once the texts are published in the coming weeks.

The potential for the car sector is high, as reported by the VDA, the German car association. In India, there are 34.3 cars per 1,000 inhabitants, which given India's population represents a sizable number of cars, but still leaves room for growth compared to other industrialized nations. For comparison: Germany has 582.4 cars per 1,000 inhabitants, the EU has 585.3, the US has 877.6, and China has 137.4.

The Indian government has also set targets to increase the share of electric vehicles to 30% by 2030 for passenger cars, 70% for trucks and buses, and 80% for two- and three-wheelers.

Notably, the annex EC document shows that in the agreement, the EU and India have agreed on rules of origin that ensure only products that have been significantly processed in one of the parties can benefit from the tariff preferences of the agreement. This will help prevent other countries from simply exporting to India and re-exporting to the EU to benefit from the tariffs.

Looking at steel, according to the latest European Steel Association document, in the first eight months of 2025, the main origins for finished steel imports into the EU market were: Turkey, South Korea, China, India, Ukraine, Taiwan and Indonesia. The main destinations for EU steel exports were the United Kingdom, the United States, Turkey, Switzerland and India.

As India is the second-largest steel producer after China and one of the main exporters of steel into the EU, with its steel produced primarily by blast furnaces, it currently faces headwinds from the Carbon Border Adjustment Mechanism. The Indian commerce ministry said Jan. 27 that no exemptions were extended to India under the CBAM as part of the free trade pact. However, the EU has assured that if any future flexibilities are granted to most-favored nations, India's steel exports will be taken into account for potential exemptions.